What do you know about the origins and history of bankruptcy? If you’re looking for relief from overwhelming debt, you may find these facts intriguing.
Early Bankruptcy History
The concept of bankruptcy dates back to Medieval Italy when, if bankers were unable to continue lending and meeting their financial obligations, their benches were broken in a symbolic display. The first formal laws concerning bankruptcy were passed in England in 1542 under Henry VIII.
In the United States, the history of bankruptcy only dates back to 1800, when the first official law was enacted in response to bad economic times. However, the law was promptly repealed in 1803. The passing and repealing of bankruptcy laws occurred two more times in the 1800s, with rules and practices favoring creditors and punishing debtors. Back then, bankruptcies focused on recovering creditors’ investments and were almost always involuntary on the part of the debtor.
Bankruptcy Legislation and Reformation
The Bankruptcy Act of 1898 was the first to give businesses protection against creditors. Then, the economic distress of the Great Depression resulted in further bankruptcy legislation in the 1930s. A 1934 US Supreme Court decision was the first to declare that bankruptcy is intended to give debtors a “fresh start.”
The Bankruptcy Reform Act of 1978, which made it easier for individuals and businesses to file for bankruptcy and reorganize their debts, still serves as the uniform federal law governing all bankruptcy cases to this day.
The Rise in Bankruptcy Filings
The number of bankruptcies filed in the US has steadily increased over the last century. Around the time of the Bankruptcy Act of 1898, about 0.15 people per 1,000 citizens filed for bankruptcy. The number began to rise in the 1960s and then hit a boom period from 1980 to 2004 when 7.6 out of every 1,000 people filed for bankruptcy.
The number peaked in 2005. That year, more than two million cases were started, meaning one out of every 55 households filed for bankruptcy. The following year, filings dropped to about 600,000, the lowest number in 20 years.
In the 12-month period ending on September 30, 2019, the number of bankruptcy filings totaled nearly 777,000, a slight decrease compared to the previous year.
Bankruptcies by State
The number of bankruptcies filed per year varies widely by state. In 2011, California had the most bankruptcies with over 240,000 filings, accounting for 17 percent of all the bankruptcies filed that year in the US. The other top five states in 2011 were Florida (95,000), Georgia (74,000), Illinois (73,000), and Ohio (59,000). Alaska had the lowest number of filings (fewer than 1,000).
If you’re thinking about filing for bankruptcy, you should be aware that every state has different laws and policies that may apply. Looking to file in Illinois? Cutler & Associates can help you navigate the process successfully. To learn more, please schedule a free consultation at one of our Chicagoland offices by calling (773) 360-5802 today.